Brian Cowen (Laois-Offaly, Fianna Fail)

Inflation, as measured by the consumer price index, reached 5% in the 12 months to March 2008. Most of the upward pressure on prices here is due to external factors, particularly mortgage interest rate increases and rising fuel and food prices.

When comparing our inflation rate with that in other EU member states we must use the EU comparable measure of inflation, the harmonised index of consumer prices, which is a better measure of underlying inflation. The harmonised index differs from the CPI in terms of coverage. The most notable difference is the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland in the 12 months to March 2008 was 3.7%, compared with 3.5% in the euro area and 3.8% for the EU as a whole. I apologise that I gave a different figure earlier. The ones I have just given are correct.

Achieving a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. The Government is focusing on areas it can control and is taking positive action to contain inflation by implementing responsible fiscal policies. I addressed the inflation impact from last year's interest rate increases in this year's budget when I increased the ceiling on mortgage interest relief for first-time house buyers. This, I believe, is the appropriate targeted response to such specific cost pressures.

We are promoting greater price competition through the work of the Competition Authority and the National Consumer Agency. We are also investing in public infrastructure, as evidenced by the National Development Plan 2007-2013. This will enhance our ability to produce more goods and services, which by improving the economy's efficiency should help to keep down inflation. To the extent that inflation is externally driven it is essential that such increases are not exacerbated by generating second-round effects through inflation-chasing pay settlements, which would have a further adverse impact on Ireland's competitiveness.

In the sectors that contribute to domestically generated inflation, pay and profit margin restraint are essential as well as increased competition in order to keep down price increases. Therefore, it is essential that the upcoming pay talks under the social partnership agreement, Towards 2016, take account of the reality that we face.

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